Global currency markets showed limited movement on Tuesday as traders assessed competing forces: a US-imposed blockade of ships leaving Iran and the continuing prospect of talks between the two countries that could reduce the risk of a wider conflict.
The dollar index, which tracks the greenback against a basket of major currencies including the euro and the yen, edged up 0.04% to 98.38. The euro was up 0.03% at $1.1761, while sterling strengthened 0.03% to $1.3508. The yen moved firmer, strengthening 0.08% to 159.3 per dollar.
Analysts pointed to the ongoing dialogue as a moderating factor for market sentiment. "Expectations that the negotiations will continue are helping to stem the worsening of sentiment in financial markets," Terumasa Kawakami, an analyst at Mitsubishi UFJ Bank, said in a note.
US President Donald Trump announced that the US military had begun a blockade of ships departing Iran’s ports on Monday. The move came after weekend talks in Pakistan aimed at ending the conflict broke down, and Tehran warned it could retaliate against ports in neighbouring Gulf states. Despite a tense meeting in Islamabad, reports indicated that negotiations between Washington and Tehran remained alive.
Trump said that Iran had been in touch and wanted to make a deal, and US Vice President JD Vance said in an interview the US expects Iran will make progress on opening the Strait of Hormuz. Those comments sit alongside a more immediate market concern: the blockade could undermine the fragile ceasefire agreed the previous week, analysts warned.
"The blockade will test the durability of the fragile ceasefire agreed last week and threatens to push the dollar back up if that unravels," Carol Kong, a currency strategist at Commonwealth Bank of Australia, wrote in a note.
Energy markets saw oil prices retreat. US crude futures were down more than $2 in early Asian trade at $96.99 a barrel, reflecting the market's sensitivity to supply risks from the Gulf region even as talk of diplomatic progress limited sharper moves.
In Japan, the probability assigned to a Bank of Japan rate increase this month declined. Interest rate swaps on Monday implied a 40% chance of a BOJ hike this month, down from 57% on Friday, according to Tokyo Tanshi data. Sources told Reuters that hopes for a near-term BOJ tightening had faded as the volatile trajectory of the Iran situation clouded economic prospects.
Ray Attrill, head of forex strategy at National Australia Bank, warned of possible currency stress if the BOJ refrains from tightening. "We’re very much of the view that if the BOJ decides to stand pat at the end of April, then the risks are that the dollar-yen exchange rate is going to punch up through 160 (yen against the dollar)," he said on a podcast. The 160-yen-per-dollar level is widely viewed as a psychologically important threshold that could raise the likelihood of market intervention.
BOJ Governor Kazuo Ueda emphasised on Monday the need to be vigilant about the fallout from the Iran war when explaining the monetary policy outlook, rather than adhering strictly to previous messaging about continuing to raise interest rates.
Elsewhere in foreign exchange, the Australian dollar weakened 0.04% versus the greenback to $0.7091, while New Zealand’s kiwi strengthened 0.03% to $0.5868.
Cryptocurrency markets were notably firmer. Bitcoin climbed 1.70% to $74,438.67, and Ethereum rose 5.32% to $2,373.32, as risk appetite showed pockets of resilience despite geopolitical jitters.
Markets remain sensitive to the dual dynamics of potential supply disruption in the Strait of Hormuz and the uncertain trajectory of diplomatic engagement. Traders and policymakers are watching how those forces will influence oil flows, exchange rates and central bank decisions in the weeks ahead.